Under a new Indiana law title companies will no longer be allowed to accept cashiers, corporate, or personal checks for their real estate closings after July 1, 2009. Mortgage lenders and many real estate buyers will need to wire transfer their funds to the title company or closing agent in most situations.
The law (House Bill 1374) requires that any party to a closing that must deposit more than $10,000 must wire transfer those funds into the closing agent's escrow account. Certified or cashier's checks or cash may accepted from any single party that needs to deposit less than $10,000. Corporate checks under $10,000 from Realtor's® trust accounts for earnest money will be acceptable in most situations.
I've been asked why such a law is necessary. One reason is that we live in a financial environment now where the previously unthinkable is happening all too often. Another reason is to ensure that funds from one closing are not used to cover checks written for another closing.
Title companies use the same bank account for many closings. If we accept a bad check--yes, lenders have gone out of business in the middle of our transactions--it may be a week or more before the bank knows and then notifies us. The reversal of the deposit may not result in a shortage in our checking account until days or weeks later because we are constantly making deposits from other closings. When the float disappears and if we don't immediately make up the shortage, checks from completely unrelated transactions will bounce. When checks from a closing bounce, the resulting carnage is not pretty. The law helps to protect all parties to the real estate closing from the effects of this happening.
The fact that cashier's checks are no longer considered good enough has more to do with bank rules about collected funds rather than the risk that a cashier's check will be dishonored. When you deposit a check in a bank--even a cashier's check--the bank will not let you draw against that deposit until the bank considers that the check is collected funds (meaning that in the bank's opinion the likelihood of the check bouncing is remote). Wire transfers are generally considered collected immediately upon receipt. Some banks treat cashier's checks as collected funds the next day; other banks take longer. Personal and corporate checks may not be treated as collected for more than a week. If the collected funds balance in an account is not sufficient to cover all the checks presented for payment that day, the bank may withhold clearing those checks or may even bounce them. Every bank has some leeway in determining when funds can be considered collected. Characteristics of the check, the check maker and the bank that it is drawn on are part of the usual criteria.
Lenders who currently fund their loans with wire transfers should like the new law. Your competitors who insisted on providing corporate checks, drafts and forms of positive pay, held a competitive advantage over you. Their costs of funds were lower since they didn't have to actually let go of the loan proceeds until their check was presented for payment several days after the closing.
The essence of the new law is that title companies are no longer allowed to disburse closings until they are certain that the specific funds associated with that closing are collected. Everyone should feel more comfortable about that.
There are some practical and logistical implications of the new law, especially with daisy chain closings. I'll be posting about them in the coming week so check back.
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Yes, I've been a little absent lately with blog posts. Business is crazy busy and so is my non-business life. But I've restructured my time and will be posting again on a regular basis. Thanks to all my friends who've been asking where I was. Well, I'm back.
Previously I worked at a bank - I know all transactions in cash of $10,000 or more must be recorded for Government monitoring purposes. Basically they want to know if terrorists are moving money around, etc - legally we had to keep logs of all these types of transactions. Perhaps this is why Illinois decided to enact this law- as an anti-terrorism measure? I would think if it were so, it would be on a more U.S. wide scale ...
Interesting law John.
I hope you'll remember me if you learn of anyone moving to "The OC" and I will do the same!
Best regards.
Michael Caruso, Broker ABR ABRM CRB CRS GREEN GRI
2007 President, Orange County Association of Realtors
Interesting. Do you think this is going to make your life easier or harder?
This seems rasonable considering how the banking industry is so....unsteady at this time.
Well, this will cause a cascade of problems. What the law makers don't understand is that consumers are not that comfortable with wire transfers.
Further, the receipt of the wire must be verified prior to closing. That has been a problem in the past in some of my larger closings.
Oh well. We are but pawns in this world of high finance.
I understand the need to wire large funds, but you can't imagine how angry it made me when I closed on my own house a couple of weeks ago and I was charged $25 for the wire transfer! That is just WRONG! There are no stamps to be bought, and there's no paper to write a check on... where is the expense? Why are the banks charging to move money from one account to another?
The last home I sold, almost two years ago--just got out of the building business in the nick of time--was the first time I experienced the same process. We had to wait for the transfer so we could complete the closing. I do understand the reasons, but it does create a bit of delay.
Wow!
Another non-problem solved by an uninformed legislator!
Bill
This is the case in other states as well. Arizona is much more comfortable with wire transfers as we have what is called "the good funds law" here.
Good to see you back, John. We have been required by the underwriter to accept only wires for some time now. I have no problem with it. Good funds is good policy.
Hey...now a days "it's beter safe than sorry" Cash is always accepted.
Patricia Aulson/Portsmouth NH Real Estate
Wire transfer is the only way to go. I have heard realtors with commissions over $10K must wait to cash their check vs. title company wire into their account.
Wow...this is a new one!! I guess it does make sense in some ways...
That is clearly a case of law makers that have NO idea what our business is like.
It does make sense but is going to cause problems. We have lots of closings here that come from a sale on another house.
Is there anything in the law that permits cashier's checks that have been on deposit with the bank for say two days or so? Is there anything in the law that forces the banks into processing the cashier's check's within a certain time period if they are on deposit?
John, it sounds like they are trying to make the funds trackable and traceable. So they can monitor for income tax purposes etc.
"Waiting For the Wire"
that is the least favorite 4 words ( from experience) we can hear in a closing...... we preferred the lenders checks at least we knew they were there and not somewhere in cyberspace.
once we even had a lender wire the funds to the wrong title company LOL
a one number mistake in input can make clients heads roll :0
and back to back closings for move up buyers on the same day may now be logistically improbable?
thanks for the heads up John
We had a relo company forget to wire the money for our closing in another state over the Memorial day weekend a few years back. That was fun. Took us over 6 hrs to work out something (with a 3 year old) only to have to come back to "officially" close. Fortunately we were able to get into the house and start working on it before the moving truck arrived.
I can see the point but banks aren't great about notifying when a wire hits even when they are supposed to be on the look out for it. Hopefully this law won't cause too much grief.
I have heard of title companies not taking offical checks from credit unions etc, but never this. I assumed that we would eventually get to wires because of a paperless society would be widespread when it happened, but this is a bit sudden. Better check with my favorite Oklahoma legislator to see if anything is brewing.
I've never heard of cash or cashier's checks not being acceptable for anything before, John. That's quite an interesting law. Do you think another reason for the demand of wire transfer could be for another income source for banks? Just a thought.
John we have been operating with wire transfes only for quite some time. It's all a matter of re-training our agents, clients etc and nobody seems to mind and quite frankly it is very seemless.
Change can bring about all good......I think you'll see that in this case.
Wish this had been in place in So. New Hampshire. I had a "client" who tried to forge a check.. she is doing time in Federal Prison!
I bought property in 2008. The lender would only accept a wire transfer. I paid wire transfer fees to my financial institution (sending) AND the receiving financial institution - more than $30 in total.
Isn't this pretty much the same as ACH / automatic deposit? Why the fees? Anyone out there able to explain that?
I also could not understand why it took three (3) days for the wire transfer to be sent and received. I write a post or comment on AR one moment, and in less than 60 seconds the material is accessible to others to view.
A reasonable alternative might be for the money to be put in the title company's escrow account 7 days prior to closing. Of course, that would require everyone -- e.g., lenders, title company, appraiser -- to be more efficient and timely. I thought banks "have to" clear checks within 3 to 5 business days now. The technology is in place to do that.
It does leave me to question the integrity of those facilitating a financial transaction such as this. And, now, Indiana's legislation leaves me to question the sanity of the legislators -- oops did I say that :-)
Bob and Caroline,
Alaska is another state that already has a "Good Funds" law. This is nothing new to us either.
I agree that there needs to be a better way of doing things...
This law is a start but they need to implement a stricter fee schedule for real estate transactions - the fees really are too high currently. Another thing to consider is how shockingly late a preliminary HUD-1 can arrive (especially here in our county where the seller selects the title company - though they pay for the title insurance) combining that with how long some wire transfers take...especially if coming in from outside the US.
You would be surprised to hear that Trust Account, Business Account & other company Escrow account checks have been bouncing here in South Florida so we are suggesting wires as a preferred method.
Ultimately though, agressively pursuing fraud as opposed to just writing laws about it would be welcomed.
we need to start using CASH or GOLD for transactions!!!!
Imaging the problems that would cause?
It's got a lot to due with the banking problems. One small payroll company I know of had to come up with an extra 500k for a short period because one of the bigger banks in the chain used thier payroll money to pay one of the banks bills off shore. That bounced checks in a couple of states. Some of the credit card processing companies have had had similar problems. For a couple of days only 5k at time was being transfered by many banks to prevent everything from going off shore. Lots of robbing Peter to pay Paul still going on. YMMV
You know, I think it's easier to wire money anyway. Wires cost about the same as a cashier's check in my bank.
Dumbest thing I've heard in a while. It's not broke so why break it? Most banks do not charge for cashiers checks for their clients and wire transfers get lost or take longer than they are supposed to. There's just as many things that could go wrong with wire transfers than CC's.
Stupid, stupid, stupid.
I am not surprised by this with some of the banks going under. Imagine having a funding check from Indymac the day before they were not open and putting that into your account as a title company, and then watching on the news that people couldn't get access to funds. Wired money is far more of guaranteed funds than these other means. It is new, it will be tedious but I imagine 5 years from now, we will all look back and think, who would have wanted a check over a wire anyway.
Really interesting piece of legislation here. If it provides more security for the buyers then I am all for it. Although admittedly, I'm not sure if this will be the case.
I like how you restructured your time. That usually means that you are sleeping less or somebody get's less time.
Hi John -- This sounds like a very practical law that will help add certainty to the process, and when it comes to money, it's always a good thing.
I can see some of what the government is trying to accomplish, but I think it may cause additional problems as well as additional costs to the individual.
This is very interesting.. I wonder how long it will be before this proctice spreads across the country
Hey there John: This is really going to be interesting and probably another snag to hold up closings.
I don't think this is a bad thing at all. In fact, anything that provides greater security to the transaction is a good thing and I wouldn't mind a bit if Maryland followed Indiana with this practice.
Wow - this is fascinating...but it makes sense. I never liked seeing clients pick up a cashier's check for $50,000 or $75,000 to begin with and then drive to the title company. They always looked like they were preparing to get mugged - which caused undue attention - exactly what they DIDN'T want!
This is probably a good thing. People will rest a lot easier, even if there is a wire transfer fee...Too bad they haven't done this in Nevada.
We have run into instances where the bank would not honor a cashier's check into my broker's account for several weeks. I checked into it because we were going to return the check to a buyer who had failed to perform. Rather than just issue the check, we made certain that the funds were in the trust account first. Good thing. He would have had twice the amount he gave us in funds. Good post!!!
Thanks for the info John_ I once had a check bounce from a title company. Seems in the interm of it clearing they had an employee theft of blank checks.That was the story when my 50k check came back.That will make you pause!
Hello Everyone! The response to this post is remarkable! I guess where money is concerned everyone has strong opinions. I'll try to briefly touch on some of the issues that you've all raised.
Indiana is not breaking new ground with this law. As several of you mentioned there are similar laws-usually referred to as Good Funds laws-in quite a number of states. Although, this is the first Good Funds law that I've heard of that treats certified and cashiers checks the same as personal checks. So maybe it's a Better Funds Law.
The law was introduced at the request of the Indiana Land Title Association. I generally support the law even though there are a few things about it given the chance that I'd change. I don't' think that this law is a ploy by banks to generate fee income. For years banks opposed any type of Good Funds laws here. So I'd like to know what changed their mind.
I agree with Lenn Harley. The average person on the street does not like wire transfers. You can get cashiers checks at the teller window. To initiate a wire transfer, you usually need to see a special person in the bank. You can't do it over the phone. It takes a while. Most banks have early afternoon cut offs so you have to do it the morning. And if the funds in your account aren't collected, you can't wire them.
As Grace Safrin pointed out, we're always "waiting for the wire." What I've learned is that when someone tells you that they've sent the wire, it usually means that they've asked their bookkeeper to send the wire. When that person gets around to it is anyone's guess. I anticipate a lot of "Is it there, yet?" phone calls. We only know when we receive the wire. The person that sent the wire only knows when they asked. There are a number of steps and safeguards in between that no one has any control over or information about. No one wants to be the next victim in the Nigerian businessman scam. Wires can take minutes or hours or longer to reach their destination. Yes, this is going to delay closings.
I'm assuming that we'll have to wire seller's proceeds out to other title companies in town and out of town. Managing that process is going to be time consuming. We have to be careful. If we accidentally cut an incorrect check, we usually have a day or two to stop payment on it as a last resort. Once we send a wire, those funds are gone. We have little hope of recovering them. And since our escrow accounting system isn't interfaced with our bank's wire transfer system, we must re-key check amounts. Doing this requires an extra standard of care so we don't mistakenly wire more funds than we should.
Over the next week or two I'll cover many of these issues in more depth with additional posts. Thanks again to everyone for your thoughtful comments.
Regards, John
Yes, this has been a very interesting blog. We've done probably over 300+ closings either purchasing or selling in Baltimore, Maryland the last 4-5 years. WE LOVE WIRES! Even for trnxs less than $10k.
Pretty much, when we can confirm that whatever "Send" button has been pressed, it's minutes that the money is in our account...pretty instant every time. We've never had a hiccup as everyone always entered the information correctly to clear pretty much instantly, which I hear any mistake can cause a HUGE delay.
The only delay we ever had was when someone said they sent it, but in reality we found out they hadn't for whatever reason. I've been told there's a 4pm cutoff for same-day delivery (assuming no mistakes), but we recently received a wire at 5:30pm to our surprise. So who knows what the real rules are.
Our transactions are typically well over $10k. Nothing more frustrating than waiting for your $20k pay day to sit in the bank for two days (sometimes 7) before you can access it! We've had this problem depositing title company checks AND CC checks even in our seasoned accounts because apparently the crooks with fake checks are getting better and better. The bank just blames it on "federal rules" and there's nothing they can do (which I KNOW is not true regarding lifting holds) but I think they do it because they can.
I'm not a fan at all of the fees they charge ($25 for outgoing wire and $12 for an incoming wire...sheesh, getting charged to DEPOSIT instant money into my account is ridiculous IMO). I would like to know what ACTUAL cost the bank incurs for wire transfers, but I doubt we'll ever find out as I'm sure it is considerably less than the $25/$12 fee they charge. But my rant on bank charges is probably more appropriate for a different blog.
Here's what we did to help things along:
1. Always had our wire routing number readily available (along with acct #, exact bank account name and address). Some banks have a different wire routing # different from the "usual" routing number.
2. We built a great relationship with our branch manager. Although "they weren't supposed to", she let me leave with a bunch of blank wire transfer forms that I could complete ahead of time. It lessened the time spent when we came in to actually get it processed. After a dozen or so of these transactions she did them over the phone for us and mailed us our copy in the mail. Again, I don't think she was supposed to do that, but it was the relationship that we built and no problems ever came about....until our Branch manager left and we had to go back to bringing in the form in person.
Hope this helps! I'm enjoying getting acquainted and hope that whatever I can pass along someone will find helpful.
LOL! I'm still learing this site...that last post was from me "Baltimore Houses". I was wondering why my profile picture didn't show up within my post...then I realized I wasn't logged in! Hopefully I've done it right this time!
in reply to Donna Harris, I am closing Thursday on a property and I am having to pay $27.00 to my bank for outgoing fees and $30.00 to the title company for the incoming fees!! I thought 27.00 was nuts until I saw the 30.00 fee on the closing side!! $57.00 vs $4.00 on a certified check!! and my credit score is in the high 780's - just nuts!
What mechanism is in place to protect the buyer who wires the entire purchase price? What keeps a crook who works for the title company from wiring all the title companies escrow funds to an offshore account and following the money out of the country? I know this sounds like an unbelievable scenerio but does andbody remember the name Bernie Madoff?